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The Real Reason US Health Care Costs So Much

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An extensive new analysis of why the U.S. spends so much more on health care than other rich countries reinforces the answer other recent studies have found: It’s not that Americans get more care or relies on specialists to a greater extent than people in those other countries. It’s that Americans pay more for everything from administrative costs to doctors and drugs. As an oft-cited 2003 study put it, “It’s the prices, stupid.”

The new study, by Irene Papanicolas, Liana R. Woskie and Ashish K. Jha of the Harvard T.H. Chan School of Public Health and the London School of Economics and Political Science, uses less pointed language but nevertheless comes to the same basic conclusion: “Prices of labor and goods, including pharmaceuticals, and administrative costs appeared to be the major drivers of the difference in overall cost between the United States and other high-income countries.”

It’s not news that the U.S. health care system fails to deliver substantially better care, or “health outcomes,” for its higher cost. But the new study uses data from the OECD and other sources to provides some details on that front:

The United States spent 17.8 percent of its gross domestic product on health care in 2016, far more than countries such as Australia (9.6 percent), the U.K. (9.7 percent), Canada (10.3 percent) or Switzerland (12.4 percent).

The U.S. had a lower percentage of its population covered by health insurance (90 percent) than those other rich countries, where 99.8 percent to 100 percent were covered.

Life expectancy in the U.S. was the lowest of any country in the study.

Infant mortality in the U.S. was the highest of any country in the study.

Per capita spending on pharmaceuticals was $1,443 in the U.S., far higher than the range of $466 to $939 in the other countries studied. Prices of drugs like cholesterol-lowering Crestor or diabetes medication Lantus were more than twice as high in the U.S. than in other countries. But Americans also had access to 111 new drugs, compared with 26 in Switzerland and 11 in France.

Administrative costs accounted for 8 percent of GDP, compared to 1 percent to 3 percent in the other countries.

Doctors and nurses made more money in the U.S. than in the other countries, with nonspecialist physicians getting salaries of about $218,000, compared to an average of about $123,000 for eight other countries in the study.

“These findings indicate that efforts targeting utilization alone are unlikely to reduce the gap in spending between the United States and other high-income countries, and a more concerted effort to reduce prices and administrative costs is likely needed,” the authors write.

There’s Still More to Learn About Health Care Spending

Not everyone in the health care debate was willing to embrace the conclusions without qualification, however. In an editorial accompanying the new study, Katherine Baicker and Amitabh Chandra of the University of Chicago and Harvard note that the latest analysis doesn’t delve into the qualitative details of health care treatments Americans get compared to people in other countries. Better data might be needed to make sure such studies are comparing apples to apples. “It is not possible to conclude that individuals in the United States pay higher prices for these services just by observing that they spend more but have the same number of visits for cancer care, receive different medications, or use the same number of stents without having granular data about the exact type of services and products being used,” they write.

And in another editorial, Dr. Ezekiel Emanuel of the University of Pennsylvania, argues that “it is unlikely that prices alone drive excessive health care costs in the United States.” He notes, for example, that while U.S. doctors make high salaries, there are fewer doctors per capita than in other countries, so the total cost of paying doctors isn’t far out of line with countries like Germany or The Netherlands. But he finds that four main areas account for most of the difference in health care costs between the United States and other rich countries: drug prices; the popularity of high-volume, high-margin procedures like knee replacements, angioplasties and C-sections; the widespread use of costly CT scans and MRIs in the U.S.; and high administrative costs. “Accordingly,” he writes, “several focused policy interventions in these 4 areas could help control costs.”

As editor in chief, Yuval Rosenberg oversees all aspects of The Fiscal Times' website and email newsletter. His writing has appeared in publications including BusinessWeek, CNBC.com, CNNMoney.com, Fast Company, Fortune, Newsweek, Money and Time.